1. (a) Conversion factor for 1999. CMS calculates a conversion factor in such a manner that payment for hospital outpatient services furnished in 1999 would have equaled the base expenditure target calculated in § 419.30, taking into account APC group weights and estimated service frequencies and reduced by the amounts that would be payable in 1999 as outlier payments under § 419.43(d) and transitional pass-through payments under § 419.43(e).

2. (b) Conversion factor for calendar year 2000 and subsequent years.

   1. (1) Subject to paragraph (b)(2) of this section, the conversion factor for a calendar year is equal to the conversion factor calculated for the previous year adjusted as follows:

      1. (i) For calendar year 2000, by the hospital inpatient market basket percentage increase applicable under section 1886(b)(3)(B)(iii) of the Act reduced by one percentage point.

      2. (ii) For calendar year 2001—

         1. (A) For services furnished on or after January 1, 2001 and before April 1, 2001, by the hospital inpatient market basket percentage increase applicable under section 1886(b)(3)(B)(iii) of the Act reduced by one percentage point; and
         2. (B) For services furnished on or after April 1, 2001 and before January 1, 2002, by the hospital inpatient market basket percentage increase applicable under section 1886(b)(3)(B)(iii) of the Act, and increased by a transitional percentage allowance equal to 0.32 percent.
      3. (iii) For the portion of calendar year 2002 that is affected by these rules, by the hospital inpatient market basket percentage increase applicable under section 1886(b)(3)(B)(iii) of the Act reduced by one percentage point, without taking into account the transitional percentage allowance referenced in § 419.32(b)(ii)(B).

      4. (iv)

         1. (A) For calendar year 2003 and subsequent years, by the OPD fee schedule increase factor, which, subject to the adjustments specified in paragraph (b)(1)(iv)(B) of this section, is the hospital inpatient market basket percentage increase applicable under section 1886(b)(3)(B)(iii) of the Act.

         2. (B) The percentage increase determined under paragraph (b)(1)(iv)(A) of this section is reduced by the following for the specific calendar year:

            (1) For calendar year 2010, 0.25 percentage point;

            (2) For calendar year 2011, 0.25 percentage point; and

            (3) For calendar year 2012, a multifactor productivity adjustment (as determined by CMS) and 0.1 percentage point.

            (4) For calendar year 2013, a multifactor productivity adjustment (as determined by CMS) and 0.1 percentage point.

            (5) For calendar year 2014, a multifactor productivity adjustment (as determined by CMS) and 0.3 percentage point.

            (6) For calendar year 2015, a multifactor productivity adjustment (as determined by CMS) and 0.2 percentage point.

            (7) For calendar year 2016, a multifactor productivity adjustment (as determined by CMS), and 0.2 percentage point.

            (8) For calendar year 2017, a multiproductivity adjustment (as determined by CMS) and 0.75 percentage point.

            (9) For calendar year 2018, a multiproductivity adjustment (as determined by CMS) and 0.75 percentage point.

            (10) For calendar year 2019, a multifactor productivity adjustment (as determined by CMS) and 0.75 percentage point.

            (11) For calendar year 2020 through calendar year 2025, a multifactor productivity adjustment (as determined by CMS).

            (12) Beginning in calendar year 2026, a multifactor productivity adjustment (as determined by CMS), and 0.5 percentage point reduction, except that the 0.5 percentage point reduction shall not apply to hospital outpatient items and services, not including separately payable drugs or biologicals, furnished by a hospital with a CMS certification number (CCN) effective date of January 2, 2018, or later. This reduction and associated exception to the reduction will be in effect until the estimated payment reduction reaches $7.769 billion, as further described in each calendar year's rule.

   2. (2) Beginning in calendar year 2000, CMS may substitute for the hospital inpatient market basket percentage in paragraph (b) of this section a market basket percentage increase that is determined and applied to hospital outpatient services in the same manner that the hospital inpatient market basket percentage increase is determined and applied to inpatient hospital services.
3. (c) Payment rates. The payment rate for services and procedures for which payment is made under the hospital outpatient prospective payment system is the product of the conversion factor calculated under paragraph (a) or paragraph (b) of this section and the relative weight determined under § 419.31(b).

4. (d) Budget neutrality.

   1. (1) CMS adjusts the conversion factor as needed to ensure that updates and adjustments under § 419.50(a) are budget neutral.

   2. (2) In determining adjustments for 2004 and 2005, CMS will not take into account any additional expenditures per section 1833(t)(14) of the Act that would not have been made but for enactment of section 621 of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003.

      Effective Date Note:At 66 FR 59922, Nov. 30, 2001, § 419.32 was amended by revising paragraph (b)(1), effective Jan. 1, 2002. At 66 FR 67494, Dec. 31, 2001, paragraph (b)(1)(iii) was delayed indefinitely.

[65 FR 18542, Apr. 7, 2000, as amended at 66 FR 59922, Nov. 30, 2001; 67 FR 9568, Mar. 1, 2002; 69 FR 832, Jan. 6, 2004; 75 FR 72265, Nov. 24, 2010; 76 FR 74582, Nov. 30, 2011; 77 FR 68559, Nov. 15, 2012; 78 FR 75196, Dec. 10, 2013; 79 FR 67031, Nov. 10, 2014; 80 FR 70606, Nov. 13, 2015; 81 FR 79879, Nov. 14, 2016; 82 FR 52637, Nov. 13, 2017; 82 FR 59497, Dec. 14, 2017; 83 FR 59179, Nov. 21, 2018; 85 FR 86302, Dec. 29, 2020; 88 FR 77193, Nov. 8, 2023]